Your Bonus Scheme Is Your Real Strategy
Updated: Aug 27
Every company has two strategies.
The one written in the board pack. And the one written in the bonus scheme.
When they match, businesses feel coherent and focused. When they don’t, the bonus scheme wins every time.
No amount of town halls, values posters or strategy days will beat the simple logic of: “What am I personally rewarded for?”
Incentives are louder than speeches
Leaders often describe the organisation they want:
collaborative
customer-focused
margin-disciplined
long-term in outlook
Then they pay people for something entirely different:
Sales paid only on order intake
Operations paid only on efficiency
Finance paid only on cash and control
The result is not a culture problem. It’s a maths problem.
We ask intelligent adults to behave one way, and reward them for behaving another.
Follow the bonus and you’ll find the behaviour
I’ve seen the same pattern in countless businesses.
If sales bonuses ignore margin, discounting becomes inevitable. If operations bonuses ignore service, lead times mysteriously grow. If finance bonuses ignore growth, risk aversion becomes a strategy.
None of these people are doing the wrong thing. They are doing exactly what the system asked them to do.
Strategy lives in trade-offs
Real strategies involve uncomfortable choices:
Growth vs risk Price vs volume Utilisation vs service Cash vs investment
If those trade-offs aren’t reflected in incentives, the organisation will quietly choose its own version of strategy - usually the safest, most local one.
Departments optimise their own scoreboard while the company result drifts.
Bonuses are not just money
The same is true of goals and recognition.
People respond to:
KPIs
promotion criteria
public praise
what gets discussed in reviews
If a sales director is celebrated for revenue and ignored on margin, the message is clear. If an operations leader is praised for cost and never for customer outcomes, the message is clear.
Incentives are anything the organisation treats as success.
Designing incentives that actually work
The businesses I respect most follow a few simple principles:
1. Shared outcomes first A meaningful part of every bonus tied to: – company margin – customer performance – cash and delivery together
2. Balance, not purity No single metric should dominate behaviour.
3. Consequences for bad growth Revenue that destroys margin should not pay better than revenue that builds it.
4. Cross-functional ownership Sales paid for what operations can deliver. Operations rewarded for what customers value. Finance rewarded for enabling, not blocking.
5. Transparency If people can’t explain how their actions affect their bonus, the design is wrong.
The danger of getting this wrong
Misaligned incentives create invisible tax:
internal arguments
poor handovers
short-term decisions
frustrated customers
leaking margin
Leaders then try to fix the symptoms with processes, systems and consultants, while the root cause sits unchanged in the reward structure.
Final thought
Culture is what people do when no one is watching.
Bonuses decide what people do when everyone is watching.
If you want to know a company’s real strategy, don’t read the plan — read the incentive scheme.
I’ll keep sharing practical perspectives on leadership and commercial performance in my other articles on my website and here on LinkedIn.
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FAQs
How do bonus schemes influence employee behaviour?
Bonus schemes signal which outcomes an organisation considers most important. Employees naturally pay attention to the measures affecting their reward, progression and recognition. If those measures conflict with the stated strategy, people may behave rationally against their incentives even when that behaviour produces a worse result for the overall business.
Why is your bonus scheme your real strategy?
A strategy describes what leaders say the organisation wants to achieve, while incentives influence what people are actually motivated to deliver. When the two conflict, the incentive system often has the stronger effect on everyday decisions. This is why examining what an organisation rewards can reveal more about its real priorities than reading its strategy document.
How can bonus schemes undermine business strategy?
Bonus schemes undermine strategy when they reward outcomes that conflict with wider business objectives. For example, rewarding sales solely for revenue can encourage discounting, while rewarding operations solely for efficiency can discourage flexibility and customer service. Each department can hit its target while the company misses its objective.
What makes a good employee bonus scheme?
A good bonus scheme encourages behaviour consistent with the organisation's strategy while remaining clear, measurable and sufficiently within the employee's influence. It should balance individual or functional performance with wider company outcomes and avoid allowing one metric to dominate behaviour.
Should sales bonuses be based only on revenue?
Usually not. Revenue-only incentives can encourage salespeople to pursue volume regardless of margin, customer quality, discounting or cost-to-serve. Depending on the business model, sales incentives may need to balance revenue with measures such as gross margin, profitable growth, retention or other strategic priorities.
Can sales bonuses cause excessive discounting?
Yes. If salespeople receive the same reward regardless of the margin generated, discounting can become a rational way to increase volume and reach a target. The problem is therefore not necessarily poor sales behaviour. The incentive may simply be rewarding revenue without adequately valuing profitability.
Should operations bonuses include customer service?
Where operational decisions materially affect customers, it can be sensible to include appropriate customer or service measures alongside efficiency. Rewarding operations exclusively for utilisation, output or cost can unintentionally encourage decisions that improve internal efficiency while reducing customer value.
How do KPIs influence company culture?
KPIs tell employees what the organisation pays attention to. If leaders talk about collaboration but measure departments entirely through independent functional targets, employees quickly learn which message matters. Culture is influenced not only by what leaders say, but by what the management system consistently rewards.
What is incentive misalignment?
Incentive misalignment occurs when employees or departments are rewarded for outcomes that conflict with one another or with the organisation's overall objectives. This can produce locally rational behaviour that collectively damages company performance.
What is local optimisation in business?
Local optimisation occurs when a team improves its own performance measure while making the overall business worse. Sales might maximise revenue through discounting, operations might maximise efficiency at the expense of service, or finance might minimise risk by restricting commercially valuable investment. Each function can win while the business loses.
How can bonus schemes create conflict between departments?
Conflict arises when departments are effectively paid to pursue competing objectives. Sales may want flexibility while operations wants stability; finance may prioritise cash while commercial teams prioritise growth. Without shared outcomes, each team can reasonably believe the other is preventing it from succeeding.
Should different departments have shared bonus measures?
Some shared measures can help align departments around overall business performance. Depending on the organisation, these could include company profitability, gross margin, customer performance, cash or service. Functional measures may still be necessary, but they should not encourage departments to improve their own result at the expense of the company.
How should businesses balance individual and company bonus targets?
A combination can work well. Company measures encourage shared ownership of overall performance, while functional or individual measures recognise areas employees can influence more directly. The appropriate balance depends on the role, but no employee should have a financial reason to damage the wider business in order to achieve their own target.
Can a bonus scheme encourage short-term thinking?
Yes. If incentives are based exclusively on short-term outcomes, employees may rationally prioritise immediate results over customer relationships, capability, investment or future profitability. Incentive design should reflect the time horizon of the strategy it is intended to support.
What does “bad growth” mean?
Bad growth is additional revenue that fails to create sufficient economic value because of factors such as excessive discounting, poor margin, high cost-to-serve, working-capital requirements or operational complexity. If incentive schemes reward all revenue equally, they can encourage growth that makes the business bigger without making it economically stronger.
Are bonuses the only incentives that influence employee behaviour?
No. Employees also respond to KPIs, promotion criteria, recognition, performance reviews, leadership attention and what gets publicly celebrated. An incentive is effectively anything the organisation consistently treats as evidence of success.
Why don't company values override poorly designed incentives?
Values can influence behaviour, but employees also observe what actually produces reward, recognition and career progression. If the organisation says “customer first” while consistently rewarding cost reduction regardless of customer impact, employees receive conflicting signals. Over time, the management system often becomes more influential than the stated value.
How can leaders identify unintended consequences in a bonus scheme?
For every measure, ask: “If someone tried to maximise this metric, what behaviour would it encourage?” Then consider what might happen to customers, margin, cash, other departments and long-term performance. This helps leaders identify ways employees could rationally achieve the target while damaging the wider business.
How often should businesses review their incentive schemes?
Incentives should be reviewed whenever strategy, market conditions, roles or business priorities materially change, as well as periodically to identify unintended behaviour. A bonus scheme designed for yesterday's strategy can continue driving yesterday's behaviour long after leadership priorities have changed.
How should incentives support business strategy?
Start with the strategic outcomes the organisation actually needs and work backwards. Determine which behaviours and decisions contribute to those outcomes, then ensure performance measures and rewards reinforce them. Strategy, KPIs, recognition and incentives should tell employees the same story.
Can changing incentives improve sales and operations alignment?
Yes. If sales and operations have conflicting measures, changing processes or introducing additional meetings may have limited effect. Aligning part of their incentives around shared outcomes can change the economics of collaboration by giving both teams a reason to optimise the overall result.
Why do companies try to fix incentive problems with new processes?
Misaligned incentives often appear as behavioural problems: departments argue, handovers fail, decisions become short-term and customers become frustrated. Leaders may respond with meetings, processes or systems without recognising that employees are behaving exactly as their measures encourage them to behave.
What is the biggest mistake companies make when designing bonus schemes?
One of the biggest mistakes is designing incentives function by function rather than systemically. Each individual scheme may appear perfectly logical, while the combination causes departments to pursue conflicting objectives. Leaders should examine how all incentives interact across the business.
What question should leaders ask when reviewing a bonus scheme?
A useful question is:
“If everyone behaved perfectly rationally against this incentive scheme, would we get the business we say we want?”
If the answer is no, the problem is not employee motivation. The system is rewarding the wrong behaviour.
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